What does Corporation Tax Act 2010 section 1031 do?

Section 1031 provides that distributions made as part of a cross-border merger are not treated as distributions for corporation tax purposes where the distributing company ceases to exist without formal winding up and the merger falls within TCGA 1992 section 140E or 140F. This removes the distribution from the corporation tax charge entirely.

What conditions must be met for the section 1031 exemption to apply?

Two conditions must both be satisfied. First, the company making the distribution must cease to exist as part of the merger without going through a formal winding-up process. Second, the merger must be one to which either section 140E or section 140F of the Taxation of Chargeable Gains Act 1992 applies.

How does section 1031 affect corporate shareholders receiving a distribution in a cross-border merger?

Corporate shareholders receiving a distribution covered by section 1031 are not subject to corporation tax on that distribution as income. The payment is simply not regarded as a distribution at all. Instead, any tax consequences are dealt with under the capital gains rules governing the merger itself.

What is the practical significance of section 1031 for cross-border restructuring?

Section 1031 is an important relieving provision for groups engaged in cross-border restructuring. It ensures the final transfer of value from a merging company that is about to be dissolved does not create an unexpected income tax charge for corporate shareholders, with tax consequences handled under capital gains rules instead.

Corporation Tax Act 2010 section 1031

Distribution as part of a cross-border merger

Section 1031 provides that certain distributions made as part of a cross-border merger are not treated as distributions for corporation tax purposes, thereby removing them from the corporation tax charge.

Where a company makes a distribution as part of a cross-border merger and then ceases to exist without being formally wound up, that distribution is excluded from being a distribution for corporation tax purposes.
The exemption applies only where the cross-border merger rules under TCGA 1992 sections 140E or 140F are in play — these deal respectively with mergers leaving assets within, or outside, the UK tax charge.
The practical effect is that corporate shareholders receiving such a distribution are not subject to corporation tax on it as income, because the payment is simply not regarded as a distribution at all.
This treatment facilitates cross-border mergers by ensuring that the final transfer of value from a merging company that ceases to exist does not give rise to an unexpected corporation tax liability for the recipients.

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